Elon Musk and Indian Import Duties

Last week, the topic of excessively high import duties on cars in India was raised by Elon Musk on Twitter. It was really a tale of 3 tweets that got Elon Musk (co-founder of Tesla), S.S. Kim (MD of Hyundai) and Bhavish Aggarwal (co-founder of Ola Electric) involved in the debate and with opposing views. Let’s go through the tweet trail.

It all started by a tweet from Madan Gowri asking Elon to launch Tesla cars in India ASAP. To which Elon responds they would love to, but the import duties are some of the highest in the world.

Then, the Managing Director of Hyundai chimes in and says by lowering the import duties it will help grow the overall EV market.

Lastly, local hero Bhavish Aggarwal (co-founder of Ola Electric) had a different take that import duties will help the local players and should remain. Of course, he is going to say that. In my previous blog post I talk about Ola Electric and how any protectionist import tariffs will only help them. Granted we are talking about 2 Wheelers compared to 4 Wheelers for Tesla and Hyundai.

However, I think you need to step back and really look at what import duties are trying to achieve. The purpose of an import duty is to protect and grow the local manufacturing base for a certain product.

Let’s take Ferrari for example. How many local car companies are producing a vehicle to compete against any vehicle from Ferrari? The answer is ZERO. With a high import duty you not only have you made it difficult for Ferrari to grow there user base in a country like India, but any jobs that would have been created by Ferrari’s dealer network are also down the drain. Even if the import duty of a Ferrari was brought down to zero I don’t think any perspective Maruti owner would consider it an option. But, the upside is the number of jobs that would have been created from Ferrari selling more cars in the country.

The Indian Government should actually have a sliding scale for import duties on 2 wheelers and 4 wheelers. Let’s look at 4 wheelers, that is one bright spot for India with companies like Tata and Mahindra that are producing locally. So yes, competition from Tesla might hurt them and import duties should be high but not exorbitant.

Looking specifically at Tesla, the import duties on the Model S and X should be cut by 50% or more to spur sales of high-end EVs. Import duties on the Model 3 and Y should be cut by 75% but only for the next 3 years or 60,000 vehicles, whichever comes first. This would spur sales and help them build up a dealer network. Then the government should really drop the hammer and say if the company sets up a manufacturing base it will give them additional economic benefits. Even if the manufacturing plant only generates 1,000 jobs that’s 1,000 workers more than if they just imported the vehicles.

Sadly, I don’t see the government reducing import duties on high-end EVs because it will be viewed as a way of helping rich people. Because the current political environment is all about populist measures.

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